Liam Shorte

Putting people back in control of their wealth
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All posts tagged Self Managed Superannuation Fund

Top 3 Barriers to a Well-Funded Retirement and Some Practical Steps to Address Them.

It’s no use pointing out flaws in people’s strategies without also offering some form of solution. So I’ll do a bit of both.

In a recent survey of over 2000 people almost 1 in 3 women still feel they have “far from enough” money to maintain desired lifestyles in retirement. 68% of Australians do not factor in major future financial setbacks in their expectations on how much money
they will have in retirement and only 8.5% of participants had a well-considered plan for major setbacks.

major health issues,
loss of employment and
lack of formal investment plan

A majority of respondents expect to have at least some or a major shortfall in retirement funding at their desired retirement age.

People are also ignoring some very relevant wealth destroyers like divorce, financially supporting elderly parents, and career break to raise children that were not seen as matters to worry about.

This may be a result of a lack of understanding of the rising costs involved in funding aged care, costs of single households and the massive gap in retirement funding that 4-5 years of lost contributions early on in a career can have on your retirement savings especially if you then move gradually back in to the workforce on part-time basis. I will deal with these in separate article.

You can find more details on the findings of the survey at the following link – MLC Wealth Sentiment 2015 Q3

Now as promised some solutions to consider:

Back-up plan for major health issues:

Private Health Insurance to manage medical and ancillary costs so you can get back to work sooner.
Income Protection cover to ensure you and your family can continue to meet your living expenses including mortgage during prolonged sickness or injury. Tight budget? Then look to your superannuation for cover.
Use the Retirement Protection Option within IP cover to ensure that you continue to build your superannuation during illness.
Trauma insurance to ensure you have a lump sum to cover unforeseen costs or the short-fall on Income Protection. Often this will provide enough money so that a spouse can take some time off to help you recuperate or make it to appointments and aid recovery.

Loss of employment

Stay connected. No matter how you love your job and your industry you need to be aware that the average person will have 5 mini careers in their lifetime so you need to be ready for change. Use LinkedIn to keep in touch with those who may lead you to your next career. It is easy to connect when you are comfortable in your job and much harder to make that connection when you are out of the workforce.
Keep up to date. Nearly every job these days will involve some form of continuous education or professional development. Embrace the opportunities and see it as employment protection insurance. Employers will keep those who increase productivity and add value. New employers will embrace those who have a track record of stepping up to challenges and managing change well.
Redundancy Cover – Redundancy cover pays a monthly benefit of 3 – 6 months if you become involuntarily unemployed. This benefit payment is intended to help you cover basic necessities and meet any pressing financial commitments whilst you are looking for new, full-time employment.

Lack of formal investment plan

It’s never too early to start planning but hopefully it is also never to late to be able to make a difference. The key is to use the tax and superannuation system to your advantage without taking on additional risk if possible. Start with some easy goals and low risk strategies like:

Setting up a cash reserve savings account in the lower-income earner’s name and have funds direct debited on your pay-day so it’s automatically building up.
Getting ahead on your mortgage payments using an offset and pay no tax on savings
Salary Sacrificing to save tax and build wealth. Minimise your tax to the 15% bracket on all money saved. Concessional Limit is $35,000 this year for those over 49.

Advanced Wealth Creation:

When you have learnt the power of compound interest from the easy savings measures then consider stepping it up. Each of these strategies involves risk, but with increased risk comes increased rewards as you should receive a premium for taking on additional risk over time. That is the basis of capitalism and includes our stock market and property markets. Those willing to take on “researched, managed and targeted” risk get the rewards for their proactive strategy. This is not a suggestion to go speculative, it is all about measuring risk v reward on each investment over the longer term.

In your 20’s to late 40’s take more risk in your investment strategies inside and outside of super. Look at the Growth and High Growth options. For anyone with 20 or more years to retirement your risk of losing with these strategies over that term is reduced.
Introduce leverage either by borrowing for an investment property or margin loan for shares or consider a managed fund with internal gearing. This should be done before your 50’s not as you near retirement. Always leave 10-15 years for any gearing strategy to pay off.

Budgeting, Budgeting, Budgeting

Track your spending for 3 months and that means everything from that morning coffee to the sneaky Big Mac on the way home! When you review the costs they may be scary so look for small ways to cut costs like:

Making your own lunch or buy a 24 pack of your favourite soft drink rather than buying individual cans from store or takeaway. You might laugh but one client saved $300 a month over 5 years and lost 15Kgs eating healthier over time. So boosted his savings and his quality of life!
Buying a small coffee machine in the office and even one for home. We bought an ALDI Xpressi machine and it makes decent coffee for less than 50 cents a cup.
Turning off all electrical items at home. this can reduce your power bill by 10% a year.
Reducing your Pay TV bundle to the basics package or cutting it out for 3-6 months each year. Many offer no lock in contracts so use it to you advantage!
Think before moving houses as this eats in to your wealth. Plan ahead and make sure that a property will suit you and possibly a growing or smaller family for 10-20 years.
Think outside the box. Could you add a granny flat for extra income or could you buy a dual occupancy to share costs with children or parents in their later life.

These are just a couple of ideas. Visit the website run by a mate of mine and subscribe to their emails to get regular tips. The site is called Humble Savers

Here’s just a sample of their posts which minimise the jargon and give helpful tips:

Taking SMSF & Retirement Questions on Sky Business Channel – Retirement Show

I appear on Sam Henderson’s Your Money Your Call – Retirement Show about once a month and a video copy of the January 24th show is included below.

For those not open to viewing the full show you can catch my comments at the following points by scrolling along the bottom of the video:

6.30 Moving from Cash to other sectors

8.40 Getting International Exposure

15.08 Outlook for Aussie Shares and Property

17.50 Selling out of resource stocks to chase performance – good or bad idea

23.10 Making large contributions at or near age 65

29.00 Off Market Transfer of share in to your SMSF

39.55 Investing through super in your 20’s

41.39 The hidden danger of Life-Cycle funds (Asset Allocation becomes more conservative as your age)

46.30 Investing in your 60’s

To get your own questions answered why not make an appointment at our Castle Hill or Windsor offices of we can meet in the city. always happy to deal with people by email. phone, Skype or a combination of them all. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

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by SMSF Coach - Liam Shorte on February 10, 2014 • Permalink

Posted in Retirement Planning

Posted by SMSF Coach - Liam Shorte on February 10, 2014

https://smsfcoach.com.au/2014/02/10/taking-smsf-retirement-questions-on-sky-business-channel-retirement-show/

How much do I need to live comfortably in retirement? 2017 Update

I wrote an article a few years ago for MYOB’s small business blog called How much do I need to retire at 60? that certainly caused some heated debate and has been viewed over 375,000 times. Just read some of the comments to see how people’s vision of a “budget” and “comfortable lifestyle” is so different depending on their circumstances.

Some of the figures used for sample retirement budgets have been updated so I thought I would provide those figures as guidance for people facing the retirement funding conundrum and not sure where to start.

The latest figures released by the Association of Superannuation Funds of Australia ASFA Retirement Standard benchmarks the annual budget needed by Australians to fund either a ‘comfortable’ or ‘modest’ standard of living in retirement.

Budgets for various households and living standards for those aged around 65
(December quarter 2016, national)

	Modest lifestyle		Comfortable lifestyle
	Single	Couple	Single	Couple
Total per year	$24,108	$34,687	$43,538	$59,808

Budgets for various households and living standards for those aged around 85
(December quarter 2015, national)

	Modest lifestyle		Comfortable lifestyle
	Single	Couple	Single	Couple
Total per year	$23,603	$34,992	$39,8171	$54,960

Source ASFA Retirement Standard. The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

The figures in each case assume that the retiree(s) own their own home and relate to expenditure by the household. This can be greater than household income after income tax where there is a drawdown on capital over the period of retirement. Single calculations are based on female figures. All calculations are weekly, unless otherwise stated.

As you can see from the figures if you are looking at a ‘comfortable’ retirement you need to consider a budget of $59,808 for a couple or $43,538 for a single person household.

In my previous article I talked about retiring at age 60 but as most people will be looking more likely at 65 as their target, I wanted to clarify what I believe you need to fund such a retirement. In my opinion a couple would need a combined superannuation and non-super investment assets balance of around $750,000 minimum and a single individual would need a balance of around $550,000. This at odds with ASFA who have recently increased their requirement by a whopping $130,000 but still have lower figures than mine as they believe you only need $640,000 for a couple or $545,000 as a single person.

My figures are based on No Centrelink Support. I am happy to accept ASFA are correct if you take into account some age pension but I find that many clients do not qualify for this because of non-income producing assets like holiday homes, caravans boats etc reducing their pension entitlements. Also there is an inherent risk that the now reduced Asset and Income Test limits may be reduced further in the search for more Government Budget Savings.

Most people I see in my day-to-day work advising on retirement planning have a “sugar coated view” of how they want to spend their time in retirement. Many have hobbies or interests that cost very little but others who like international travel or partaking in expensive social lifestyles of hobbies often under-estimate the costs.

Another worrying trend is people borrowing in their 50’s to fund lifestyle for fear of missing out or to keep up with the Jones! Others are helping children with home deposits and losing the vital compounding interest on their savings. Many tell me they believe they can live on the Government Age Pension in retirement. Well if you can’t manage on your current wage now without borrowing then you are in for a big shock if you plan to rely on the meager Age Pension.

I see one industry commentator saying that the savings required to live a modest lifestyle in retirement only requires a small amount of retirement savings in addition to the age pension, however that sort of budget leaves you very vulnerable to food and utility price inflation as people will have seen with rising vegetable and electricity pricing in the last few years.

When you look at these estimates of the amount capital or assets you need to achieve the lifestyle you want in retirement, it’s still important to remember that most of these work on the average life expectancy. If your family has a history of longevity or early death, then you need to make allowances accordingly.

The bottom line: It’s never too early and hopeful not too late to start planning. So if you want to see where you stand at present based on your current savings and contributions to super, then use the Retirement Planner on the ASIC’s free Money Smart website.

Once you work out you target you should consider seeing a Financial Planner to see what strategies are available to you to boost your savings such as using a Transition to Retirement Pension and Salary Sacrifice strategy to save on personal and superannuation tax and build your nest egg.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

6 Comments

by SMSF Coach - Liam Shorte on February 7, 2014 • Permalink

Posted in Retirement Planning

Posted by SMSF Coach - Liam Shorte on February 7, 2014

https://smsfcoach.com.au/2014/02/07/how-much-do-i-need-to-live-comfortably-in-retirement/

Will you be paying the top up tax on your SMSF contributions ?

If you are a “High income earning” taxpayer you may receive a tax assessments from the ATO for top-up tax on your concessional superannuation contributions for the previous financial year.

Bleeding Taxpayers Dry!

The “top-up tax” on concessional contributions for high income earners is known as Division 293 tax. It is effective from the 2012/13 financial year. In effect this Division 293 tax reduces the superannuation tax concession they receive.

This ATO explains the tax in sumary and I will detail it afterwards:

If you want to know now rather than wait for the notice of assessment, then here are the criteria that apply.

What determines that you are subject to Division 293 Tax?

An individual is generally liable to pay Division 293 tax if the sum of their income and their low tax contributions (concessional contributions) is greater than $300,000.

Component s of Income used

To calculate an individual’s income for Division 293 Tax purposes, the ATO will look at the individual’s income tax return and use:

taxable income (assessable income less deductions)
total reportable fringe benefits amounts
net financial investment loss
net rental property loss
amounts on which family trust distribution tax has been paid
super lump sum taxed elements with a zero tax rate.

These elements are summed (except the super lump sum amount, which is subtracted) to give the income amount.

What is the top-up tax rate

The high-income earner will be subject to an additional 15% tax on the lesser of their concessional contributions or the amount above the $300,000.

How is it Calculated

Add the income and low tax contributions.
Compare the amount from Step 1 to the $300,000 threshold to identify any excess above the threshold.
Compare the low-tax contribution amount and the amount from Step 2. Take the lesser of the two amounts, which then become the taxable contributions.
Apply a 15% tax rate to the taxable contributions.

When will the top-up tax be assessed?

The top-up tax is assessed only after both of the following matters are finalised:

Your individual tax return has been processed, and

Your SMSF annual return or retail, employer or industry fund member contribution statement has been issued.

What is the process for payment

Payment is the individual taxpayer’s responsibility once the Tax Office assessment notice is issued. The individual may also choose to get their fund to pay the top-up amount using the release authority provided by the Tax Office.

Example

Rachel from Baulkham Hills, earned $291,000 in income during the 2012-13 year. In addition, she has employer contributions of $25,000. The total, $316,000, is over the $300,000 threshold. Rachel is subject to the Division 293 “top up” tax.

Rachel is subject to the top-up tax on the lesser of her actual concessional contributions or the amount above the $300,000 threshold. Her concessional contributions are $25,000 while the excess over the threshold is $16,000. The lesser amount is $16,000, therefore Rachel has taxable contributions of $16,000

The amount of Division 293 tax levied on this individual equals $16,000 at 15%, being $2,400.

Once she receives her Notice of Assessment, she can either choose to pay it herself or get her fund to remit the amount directly to the ATO using a form provided with the assessment.

Are you looking for an advisor that will keep you up to date and provide guidance and tips like in this blog? then why not contact me at our Castle Hill or Windsor offices in the Northwest of Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

3 Comments

by SMSF Coach - Liam Shorte on January 14, 2014 • Permalink

Posted in Contribution Strategies, Contributions, Tax Planning

Posted by SMSF Coach - Liam Shorte on January 14, 2014

https://smsfcoach.com.au/2014/01/14/will-you-be-paying-the-new-top-up-tax-on-your-smsf-contributions/

SMSFs and Estate Planning: When the documentation does not match

Western Australian has a habit of bringing to light interesting estate issues and one of the2013 cases lives up to that reputation and highlights the importance of really understanding estate planning where a self-managed superannuation fund is involved (Ioppolo & Hesford v Conti [2013] WASC 389).

The background to the case is that a Mrs Conti passed away with large balance in an SMSF, of which her husband was the surviving individual trustee and the only other member.

In the decade before her death Mrs Conti had signed a series of non-binding and binding death benefit nominations (BDBN) directing that her superannuation death benefit should be paid to her husband but these had lapsed. Note, many deeds still unnecessarily refer to the SIS regulations and in specific the need to renew BDBN every 3 years when dealing with Binding Nominations.

However in her Will, Mrs Conti had directed that her SMSF member balance be paid not to her husband but to her children and she specifically expressed her wish that none of her benefit should be paid to her spouse.

Mr Conti, (as the sole surviving trustee of the SMSF) resolved to pay her entire balance to himself. (This would have needed to be done within 6 months of her death under Section 17A(4) of the SIS Act or else a second trustee would have to be appointed).

It is worth reminding you that the Superannuation Complaints Tribunal (SCT) has no authority to review an SMSF trustee decision.

As such, Mrs Conti’s children who were the executors under her Will had to challenge this trustee decision in the Supreme Court of Western Australia.

The Court held that the trustee of the SMSF could pay the death benefit to Mr Conti, and the children failed in their application.

This reinforces the need to consider an overview of the entire estate and other assets like trusts, companies and superannuation to ensure the various documentation required in succession planning is supportive of the clients wishes. Estate planning must consider the full circumstances and specific tailored solutions, especially where there is superannuation and in particular where a SMSF is included.

Some finer points worth noting on this case are that the will which expressed the intention to leave the funds to the children was made in 2005, however she also made a later binding nomination in 2006 where she (again) directed the payment to her husband. So you can see that there was some confusion as to actual wishes. The later nomination lapsed, so at death, there was no binding nomination in force and two conflicting expressions of her wishes (ie the will in 2005 went one way and the BDN in 2006 which went the other).

The central point of the article remains the same, but I don’t think we can be sure what the wife’s actual wishes intentions were at the date of death, given the conflicting and confusing messages she left behind.

The use of a Corporate Trustees, updating the Trust deed to allow for a Non-Lapsing Binding Death Benefit Nomination are some of the measures that may have prevented this outcome.

We can work with you and your solicitor or introduce you to a solicitor with specialist SMSF training to minimise the chances of such problems occurring.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

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by SMSF Coach - Liam Shorte on November 26, 2013 • Permalink

Posted in Binding Death Nominations, Estate Planning

Posted by SMSF Coach - Liam Shorte on November 26, 2013

https://smsfcoach.com.au/2013/11/26/smsfs-and-estate-planning-when-the-documentation-does-not-match/

Do I Need Annual Valuations If My SMSF Has Investments In Private Trusts Or Companies

The new requirement to value all assets supporting a pension at market value annually will have an impact on minimum pension amounts from here onwards. To be precise, SIS Regulation 8.02B requires all SMSF assets to be valued at market value each year. In the past we relied on ATO Taxation Determination TD 2000/29 that required that where an accumulation fund has underlying assets supporting a pension, those assets must be valued at their net market value on the commencement day of the pension.

In subsequent years we found that SMSF assets used to pay a pension may not have been re-valued correctly after commencement of the pension.

The new risk associated with Regulation 8.02B is that failure to mark to market the value of the asset has potential to cause the fund to fail to meet the minimum pension requirements. With normal shares, managed funds, commodities like gold etc this is not too hard as they can be valued quite easily but the danger arises when the fund has investments in private companies or private trusts, patents or unique property assets.

Unlike SMSFs that must value assets at market value, private trusts and companies are generally not subject to the same regulations or requirements. Therefore, those controlling these entities may adopt a different valuation method such as valuing shares or units at cost in their financials. The impact of the different valuation methods is that the fund’s investment in the private company or a unit trust may not be valued at market value, with the implication being that the fund fails to meet the minimum pension payment required to maintain the tax exempt status of the pension.

The problem is that the cost of valuing an unlisted company or trust assets may require a great deal of work and even a specialist to provide a report. This is definitely a matter to consider sooner rather than later as it is most likely to affect larger pensions accounts and therefore the cost of losing exempt current pension income status (ECPI) may be a considerable amount.

Likewise if you have assets such as patents that are hard to value as they may have nothing to compare with or their value is subject to many other factors you need to document your valuation method and be prudent in your assumptions. Not the time for aggressive tactics and I would always suggest speak with your auditor before completing the valuations for the financials to ensure they are happy with your assumptions.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on November 14, 2013 • Permalink

Posted in Audit, SMSF Management

Posted by SMSF Coach - Liam Shorte on November 14, 2013

https://smsfcoach.com.au/2013/11/14/do-i-need-annual-valautions-if-my-smsf-has-investments-in-private-trusts-or-companies/

Government Superannuation Proposals Review – What got the flick

The new Tony Abbot led Government advised that soon after they were elected they were informed that ninety-six superannuation and tax announcements had not been legislated in the last 12 years.

Joe puts the broom to work

Four of these previously proposed measures have been dealt with as part of the repeal of the Carbon Tax and Mining Tax package. The remaining ninety-two measures of unlegislated tax and superannuation measures have been classified into three groups:

• Proceeding
• Not proceeding
• Further consultation required.

Joe Hockey advised they are determined to resolve all policies relating to these matters by 1 December 2013 for inclusion in the Mid-Year Economic and Fiscal Outlook (MYEFO) and intend that the bulk of legislation that is to be progressed should be passed by the Parliament by 1 July 2014. Here we look at the Superannuation related measures that may affect SMSF Trustees and members.

Superannuation proposals that have got the green light

Transfer of lost member accounts to the Australian Taxation Office (ATO)

The Government will proceed with increasing the threshold whereby lost accounts are required to be transferred to the ATO from $2,000 to $4,000, and then to $6,000. This is estimated to add more than $815 million to consolidated revenue.

Superannuation proposals that are getting the flick – red light

Tax on superannuation pensions

The Government will not proceed with Labor’s announcement of 5 April 2013 which would have taxed people’s superannuation pension earnings above $100,000 in the income stream phase. The Government acknowledged that complexity and compliance costs associated with this initiative are extreme and essentially undeliverable. Thank you to SPAA, FPA, ICAA, IPA, CPA and AFA for putting forward such great arguments to dissuade this poorly thought out initiative.

It is estimated that not proceeding with this measure will negatively impact the underlying cash balance by $313 million over the current forward estimates period.

This move will be welcomed by all in the superannuation industry and I do not believe the ordinary member of the public realised how much havoc managing such a proposal would have had caused and the administrative cost would have to be borne by all superannuation members

Establishment of a council of superannuation guardians

The Government will not proceed with the creation of the council of superannuation guardians or the Charter of Superannuation Adequacy and Sustainability. It is estimated that this will save $7.5 million over the current forward estimates period.

This I am disappointed with as a glance at the poorly thought-out tax on pension above would indicate that had the previous government taken time to consult with industry they would have been alerted to the folly of this measure early on and avoided the damage done to the reputation and stability of the superannuation system.

Superannuation proposals that are to be reviewed – Amber light

Clarifying the operation of certain superannuation trust deed clauses

This measure is designed to ensure that trust deed clauses cannot be used to prevent excess contribution amounts from being counted as contributions.

Acquisition and disposal of certain assets between related parties of self-managed superannuation funds (SMSFs)

The May 2011 Budget contained an announcement that there would be restrictive rules for the acquisition and disposal of certain assets between SMSFs and related parties. Although legislation was drafted, it was excised from the relevant Bill, meaning that there were no changes made to the related party acquisition and disposal rules. Hopefully the Government will confirm that other changes to law, including the requirement for all SMSF transactions to be conducted at market value, providing there is sufficient comfort that no manipulation of prices will result in favourable capital gains tax and contribution cap outcomes.

Encouraging the take-up of deferred lifetime annuities

This measure is designed to encourage the take-up of deferred lifetime annuities (DLAs) by providing these products with the same concessional tax treatment that applies to investment earnings on superannuation assets supporting retirement income streams.

Verification of SMSF members and bank accounts

The Cooper review recommended changes to ensure that superannuation money is transferred to a valid SMSF bank account. The recommendation included that a register is provided to enable APRA funds to check SMSF details to meet data and e-commerce standards. This proposal appears quite valid given that often bank officers opening the relevant accounts do not understand the significance of the difference between a personal tax file number (TFN) and an SMSF TFN and ABN. This can often result in personal accounts being opened instead of SMSF accounts to get better rates or lower fees. It is not until the auditor of the fund comes along that often the mistake is recognised. Worse still, the ATO includes fund income in a personal tax return rather than an SMSF return.

Stronger Super measures

Unlawful payments from regulated superannuation funds — promotion of illegal early release schemes
This measure introduces penalties for promoting schemes designed to obtain the illegal release of superannuation benefits.

Unlawful payments from regulated superannuation funds — income tax rates amendment
Superannuation benefits received illegally will be taxed at 45 per cent plus Medicare levy.

Rollovers to SMSFs
Rollovers to SMSFs will become a ‘designated service’ under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF). Superannuation funds will be required to introduce additional checks and safeguards.

SMSF administrative directions and penalties
This measure gives the ATO flexible and cost-effective penalty options to deal with SMSFs that breach the law. This was a surprise exclusion from legislation passed prior to the election, given it appeared to have bi-partisan support, together with broad support from industry.

A big thank you to the IOOF Technical team for the background detail on these measures and content.

As always if you have any comments please add them below or if you wish to discuss your position and strategies for Centrelink and/or Aged Care costs then please contact us for an appointment at our Castle Hill or Windsor office or call me direct on my mobile 0413 936 299.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Leave a comment

by SMSF Coach - Liam Shorte on November 7, 2013 • Permalink

Posted in News & Stats

Posted by SMSF Coach - Liam Shorte on November 7, 2013

https://smsfcoach.com.au/2013/11/07/government-superannuation-proposals-review-what-got-the-flick/

Deeming rates to reduce – relief for SMSF cash investors

Some good news on the Centrelink front at last. We have watched as the interest rates drop but Centrelink deeming rates stayed static. With Term Deposits now paying less than 4% the deeming rate seemed out of touch and the Minister for Social Services has announced a reduction to the deeming rates reflecting those lower returns available to income support recipients from financial investments.

From 4 November 2013 the deeming rates will be:

Deeming rate	Single	Couple
2%	First $46,600	First $77,400
3.5%	Above $46,600	Above $77,400

So deeming rates are now set to reflect returns on cash investments available to pensioners and other income support recipients. It recognises that many pensioners and social security recipients who also rely on own-source income have been adversely affected by the global economic downturn.

Means tested part rate income support recipients paid under the income test, with financial investments mainly in high interest savings accounts, term deposits, shares, bonds and managed investments, may receive an increase in their pension payments, to reflect the reduction in their assessable income. However after a solid year in the share and property markets do not be surprised if the effect is cancelled out or you actually receive a little less once Centrelink updates its values for your portfolio.

This change applies to both Centrelink and Department of Veterans’ Affairs means tested recipients.

For those managing money for relatives in Aged Care you may find the income-tested fees may have lower costs as a result of the new lower deeming rates.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

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by SMSF Coach - Liam Shorte on October 29, 2013 • Permalink

Posted in Age Pension, Centrelink

Posted by SMSF Coach - Liam Shorte on October 29, 2013

https://smsfcoach.com.au/2013/10/29/deeming-rates-to-reduce-relief-for-smsf-cash-investors/

Do You Have Access to Copies of Your Important Personal and SMSF documentation

After a week of “Bush Fire Emergencies”, packing “what we could not do without” into cars and trailers at our home in the beautiful Hawkesbury region of Sydney I have learned a few lessons and had the complacency beaten out of me when faced with having to evacuate our home at short notice and needing to take all essential paperwork with us.

Get Away Folder

Now I have always considered myself to be somewhat prepared for emergencies, mostly because I know I am normally disorganised so if I do not have things pre-prepared then I know I would struggle to find the items needed. So I have a my Get Away concertina folder of essential paper work which includes:

copies of our drivers licences
copies of our passports
car insurance schedule and PDS
home and contents insurance schedules and PDS
bank account and credit card details

I considered this to be enough as I knew I could find copies of most other information online or in my work computer.

In reality, I had considered this only from my point of view and not considered what my wife or family would have needed if I had been injured or worse. Like many couples, we agreed that one of us handles the finance and the other handles everything else that keeps our family going. It was only when actually faced with the reality that I realised how much else I should have included to make sure my family were not burdened with unnecessary paperwork if things went wrong:

contact details for our Accountant, Lawyer, Doctors, Vet and Financial Adviser (yes, i do have one too; my business partner as otherwise you always leave your own needs until last).
copies of our wills
copies of Enduring Powers of Attorneys
copies of our SMSF Binding Death Nominations
certified copies of my SMSF Trust Deed, Corporate Trustee constitution and Family Trust Deed (most are issued with 3 originals and you should always keep one and not leave everything with your Accountant as things can go wrong in their office too)
life Insurance schedules
superannuation statements
rates notice to show ownership of the property
Account numbers, user ids and Password details for personal and SMSF bank accounts, share trading facilities, mortgage providers, electricity and medical insurer among other essential sites.
spare keys for house and car (i am still trying to find the key to the ride-on mower that I removed and put somewhere safe because of looters and I had to ask my wife for a key to the house after 4 years living there!)

Keep the folder updated

We had changed mortgage provider and home insurer in the last 3 months (bet they are sighing with relief!) and had just renewed my sons passport, so make sure to keep your Get Away Folder updated.

Keep a scanned copy

Thankfully we also have another complimentary option and that is to store much of this information on the web to have an additional backup. Now while this is a way to store your essential information, DO NOT use this as the only method as technology has a habit of failing you when most needed. There are numerous portable storage devices and online storage options available to you, including Dropbox, Google Drive and SkyDrive to name a few and they area a pretty easy and reasonably secure option for making sure your stuff is available off site from your home. This option is only advisable after you’ve completed the Emergency pack and be absolutely sure to write down where this information can be found and how to access it in case you can’t be there.

Get organised and don’t delay

This past week was a wake up call for me and I am so grateful that none of this information was actually needed this time. However, I don’t ever want my wife to be put in the frustrating position of searching for paperwork about our finances in the aftermath of an accident or emergency, and I’m pretty sure you don’t either.

I would also urge you to read the following resources; but please feel free to add your own ideas in the comments section below as well.

Emergency survival Kit and Bush Fire Survival Plan.

Last but definitely not least, I would like to thank the amazing people at Kurrajong Heights RFS and all the NSW and interstate personnel and volunteers that are putting their lives on hold to protect others.

IF YOU KNOW SOMEONE AFFECTED BY THE FIRES I AM HAPPY TO HELP THEM FREE OF CHARGE FROM OUR CASTLE HILL OR WINDSOR OFFICES. The FPA also has a free service where victims of the fire can call 1300 626 393 or complete the application form to arrange to speak with a financial planner free of charge and begin to rebuild their lives and financial strength.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on October 25, 2013 • Permalink

Posted in SMSF Management

Posted by SMSF Coach - Liam Shorte on October 25, 2013

https://smsfcoach.com.au/2013/10/25/do-you-have-access-to-copies-of-your-important-personal-and-smsf-documentation/

Question on Multiple Progress Payments When Buying a House & Land Package in a SMSF

Question received:

Hi Liam

You recently mentioned that you it’s possible to do construction within a SMSF where there could be draw downs? Did you do an article on this somewhere that I could research?

Answer:

The following is general advice only and you should get very specific advice on your own proposed strategy before spending any money on implementing these strategies. Do not rely on general information in an article to put in place any strategy.

I wrote a general article on purchasing House and Land Packages which is linked at the end of this article. But to address the matter of draw downs in specific I will deal with it here. Yes you can engage in construction of a property under a LRBA (Limited Recourse Borrowing Arrangement) or Super Fund Borrowing as it is commonly know. It is also possible to have progress payments if the LRBA is structured properly.

The ATO provides example 10 in SMSFR 2012/1, which concerns the purchase of a house and land package by a SMSF under a LRBA. The ATO had said in that example that “because the contractual arrangement is for the acquisition of land with a completed house on it, and settlement occurs once construction of the house is finished, the deposit and the payment on settlement can be funded under a single LRBA.

This was followed up by a request for more details in a National Tax Liaison Group (NTLG) Superannuation Technical Sub=group meeting in December 2012 where they were asked to confirm more than 2 payments could be made, so not just deposit and final settlement payment but progress payments.

Please read section 7.4 of the NTLG Superannuation Technical Sub-group – meeting minutes December 2012

The result:

So they confirmed that it does not have to be only two payments. There can be multiple progress payments under the one single LRBA HOWEVER only if the terms of the LRBA allows the SMSF trustee to make multiple draw-downs for that purpose or if the SMSF funds the progress payments from its own funds.

You should also read the March 2013 minutes Section 7.5 Limited recourse borrowing arrangements and the payment of deposits. Please note NTLG minutes are for guidance by the ATO and are not binding rulings so get personalised advice..

So in summary:

The non-negotiable components of a successful LRBA for a House and Land package must include:

the single acquired asset is at all times a completed house and land, and
the security for the loan is at all times over the land and completed house, and
the LRBA must allow drawdowns for the deposit, progress payments and settlement.

As this is a very specialised process and requires specific wording to the LRBA agreement you need to work with a SMSF Specialist Advisor, experienced Mortgage Broker and a Lawyers who know how to draft personalised documentation. Do not trust a bank to provide all the documentation on a loan like this as they will only be interested in protecting their interest and that may not provide you with the documentation to meet the Section 67A exemptions.

It may be better to consider arranging a loan with an offset account (never a redraw facility as that would breach the rules) that is draw down in full initially and the excess stored in the offset account and used to fund the progress payments as the build progresses.

Please read my previous blog for more background on this subject Can I borrow to buy a house and land package off the plan in my SMSF?

Why not click here to Schedule a Meeting by phone, face to face or via Skype if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

3 Comments

by SMSF Coach - Liam Shorte on September 25, 2013 • Permalink

Posted in Borrowing, Loans, LRBA, Property

Posted by SMSF Coach - Liam Shorte on September 25, 2013

https://smsfcoach.com.au/2013/09/25/question-on-multiple-progress-payments-when-buying-a-house-land-package-in-a-smsf/

Making the most of the Transition to Retirement Pension over age 59

After my last blog article I have been asked for some guidance on how to maximise the Transition to Retirement (TTR) & Salary Sacrifice strategy under the new SG and Concessional Contribution (CC) limits for those over 59. Also readers wanted to know more about the “resetting” pensions to move each year’s contributions to Pension phase.

This general advice applies equally to those using an Self Managed Superannuation fund (SMSF) , Industry, Retail or Employer fund.

Pensions are not set in stone. Review them regularly

Resetting the pension periodically (eg annually) from age 60, can help TTR users to get more money into a tax-free environment. Also, the additional income payments, which would be tax-free, could be re-contributed into super by utilising any remaining CC cap or by making non-concessional contributions (NCCs).

Example: Strategy Changes for those age 59 or over

When strategy commenced Marie, an Administration Manager in Castle Hill, is 60 years of age and earns a salary of $90,000 pa plus Employer SG for a total package of $98,100. On 1 July 2012, she:

used her entire super balance of $250,000 to start a TTR pension
based on our recommendations elected to receive TTR pension payments of $10,703, and
arranged with her employer to salary sacrifice $16,900 in to super to use up her full $25,000 limit applying that year.

The key point to mention is that using this strategy Marie maintained her exact same after-tax income but selected it from the most tax effective sources..

Then we had the latest government changes to Super from the Budget.

SG increased to 9.25%
Concessional Contribution limit for those over 59 on 01 July 2013 increased to $35,000

So strategy changes were needed. On 30 June 2013, she had $22,101 in her accumulation account and $260,387 in her pension. On 1 July 2013, she:

stopped her current TTR pension, merged the money with her accumulation balance and started a new TTR pension with $282,488. (Resetting)
elected to receive pension payments of $17,105 from the Transition to Retirement pension, and
increased her salary sacrifice contributions to $26,675 again to use up the $35,000 limit and maintain the same Net Take Home Pay.

The outcome

The table below summarises her income and super contributions in 2012/13 (with and without using the TTR strategy) and the changes she made in 2013/14 in response to the super changes.

	In 2012/13		Adjustments in 2013/14
	No TTR	With TTR	with TTR
Salary	$90,000	$73,100	$63,325
TTR Income	Nil	$10,703	$17,105
Tax	-$22,597	-$16,400	-$13,027
Net Take Home Income	$67,403	$67,403	$67,403
SG	$8,100	$8,100	$8,325
Salary Sacrifice	Nil	$16,900	$26,675
Total CCs*	$8,100	$25,000	$35,000

*CCs = concessional contributions (SG + Salary sacrifice or Self Employed Contributions)

By making the adjustments, she will:

get an extra $22,101 into the tax-exempt pension to take greater advantage of the 0% tax rate that’s payable in the fund on investment earnings
salary sacrifice an extra $9,775 into super taxed at 15% instead of her marginal 38.5% rate
take full advantage of the higher Concessional cap of $35,000, but also taking into account the SG increase to 9.25%
reduce her income tax by $3,373
reduce the total tax paid by $1,873, after taking into account the 15% tax that will be deducted from the additional $10,000 of concessional contributions, and
maintain the same after-tax income or net take home pay

Marie can also restart her pension at the beginning of each financial year until she retires at age 65 to maximise the amount in pension phase and make any further changes required as a result of future rule changes.

This is a strategy that has very little to do with the actual investments in your fund so you can see it as a “low/no risk” strategy that enhances your retirement savings without taking on additional investment risk.

Now to make the most of the tax-exempt pension environment you may alter your investments to seek more income or franking credits but it is not compulsory.

It’s not too late to get your plan in place for 2013/14 tax year so why not click here to Schedule a Meeting by phone, face to face or via Skype if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

1 Comment

by SMSF Coach - Liam Shorte on September 10, 2013 • Permalink

Posted in Contribution Strategies, Pension Strategies, Tax Planning

Posted by SMSF Coach - Liam Shorte on September 10, 2013

https://smsfcoach.com.au/2013/09/10/making-the-most-of-the-transition-to-retirement-pension-over-age-59/

Aged 59 – 64 and not on a Transition to Retirement Pension – SHAME ON YOU!

Yes, that’s me shouting!. In this day and age with utility prices rising , people struggling to save and interest rates so low that it is making pensioners weep, we are still finding many people not using the simple, relatively risk-free strategies available to them to reduce their income tax and tax on the earnings of their superannuation savings.

Day in day out I meet new prospective clients, some with SMSFs and some in industry or retail superannuation funds who worry about paying Advice Fees but have ignored the ability to save ten of thousands of dollars in tax, over those pre-retirement years, using the same system that most of their peers are enjoying in a tax-free pension environment.

DON’T WASTE MONEY PAYING TAX WHEN YOU DON”T HAVE TO.

In fact I am willing to promise that you can improve your annual retirement income by on average 5% by implementing the Transition to Retirement Pension coupled with a Salary Sacrifice strategy for 5-10 years before retirement.

Benefits of a Transition to Retirement Strategy

Give your retirement savings a boost – your super balance will keep growing as you make self-employed contributions or your employer continues to make contributions into your super account.

Lower you taxable income – If you choose to salary sacrifice some of your pre-tax income into your super, you can further boost your retirement savings. This is because your salary sacrifice contributions are taxed at a lower rate (15% for those earning less than $250K) when they go into your super so that saves an immediate:

19.5% for anyone earning more than $37,000 and less than $80,000 as your marginal tax rate is 34.5% inclusive of Medicare on every dollar over $37,000
24% for anyone earning more than $87,000 and less than $180,000 as your marginal tax rate is 39% inclusive of Medicare on every dollar over $80,000
34%* for anyone earning more than $180,000 and less than $300,000 as your marginal tax rate is 49% inclusive of 2% Medicare and 2% Temporary Budget Repair levy on every dollar over $180,000

Oh yes, that 2% extra Temporary Budget Repair levy applies to those earning over $180,000 per year.

July 1 2017 changes: From this date by moving to pension phase your balance in the transition to retirement pension account no longer moves to a “tax exempt” status so it will continue to pay tax at up to 15% on dividend income, rental income or capital gains. That is why it is essential you look for or are aware of triggers to move to a full Account Based Pension

A Transition to Retirement (TTR) strategy remains valid after the changes announced in the 2016 Budget.

Pay less tax and keep the same take home amount
You can enjoy generous tax concessions for both retirement income streams and super contributions while still taking home the same net amount. you are just taking the money from the most tax effective source. Remember after you turn 60, you won’t pay any tax on your pension income stream payments.

Pre July 1 2017 Case Study: Ann aged 59 on 01 July 2013 has $300,000 in Superannuation. She has an annual income of $95,000 and wants to keep her take home pay the same but look at a TTR combined with salary sacrifice to improve her retirement savings.

Results for 2016-17 Year
Without Transition to Retirement Strategy
Drawdown Percentage 0.000 %
Package $104,025
Plus Assessable Pension Income $0
Less Concessional Contributions $9,025
EQUALS TAXABLE INCOME $95,000
Less tax and Medicare $24,682
Plus Rebate $0
EQUALS AFTER TAX INCOME $70,318
Plus Exempt Pension Income $0
Less Non Concessional Contributions $0
EQUALS TAKE HOME INCOME $70,318

Accumulation Start Balance $300,000
Plus 85% of Concessional Conts $7,671
Plus Non Concessional Conts $0
Plus Interest $13,701
EQUALS ACCUM END BALANCE $321,372
FUND ASSETS END BALANCE $321,372
With Transition to Retirement Strategy
Drawdown Percentage 5.600 %
Package $104,025
Plus Assessable Pension Income $0
Less Concessional Contributions $35,000
EQUALS TAXABLE INCOME $69,025
Less tax and Medicare $15,361
Plus Rebate $0
EQUALS AFTER TAX INCOME $53,664
Plus Exempt Pension Income $16,800
Less Non Concessional Contributions $146
EQUALS TAKE HOME INCOME $70,318 (so same net take-home pay)

Pension Start Balance $300,000
Less Pension Payments $16,800
Plus Interest $14,585
EQUALS PENSION END BALANCE $297,785
Accumulation Start Balance $0
Plus 85% of Concessional Conts $29,750
Plus Non Concessional Conts $146
Plus Interest $782
EQUALS ACCUM END BALANCE $30,678
FUND ASSETS END BALANCE $328,464

In this example Ann keeps the same take home pay of $70,318, adds an extra $7,092 to her Retirement Savings and pays $4,071 less in tax. That’s just one year with no change to her investment profile as it has nothing to do with the actual investments. If you do not need the pension income then just put it back in to the fund as a non-concessional contribution,

Don’t ignore these crucial annual savings as they add up to that extra holiday a year in retirement.

There are benefits to this strategy for anyone over 55 but it becomes a “win-win” situation once in the 59-64 age group. So don’t ignore this strategy and please pass it on to others you think it may suit.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

7 Comments

by SMSF Coach - Liam Shorte on September 4, 2013 • Permalink

Posted in Contribution Strategies, Pension Strategies, Retirement Planning, SMSF Management

Posted by SMSF Coach - Liam Shorte on September 4, 2013

https://smsfcoach.com.au/2013/09/04/aged-59-64-and-not-on-a-transition-to-retirement-pension-shame-on-you/

How Much Super is Enough for Retirement? – Easy to follow video

I am always ready to beg, borrow and …well grab with both hands useful information that helps people understand the biggest retirement planning question. “How much do I need to Retire?” I wrote an article last year for MYOB which got over 100,000 hits so this must be one of the burning questions. You can read my article by clicking here but if you are someone who prefers a simple visual explanation, then some clever clogs at AMP has designed this easy to follow cartoon type presentation of one of the solutions most commonly put forward to that question.

The Rule of thumb they use is ….well have a look and see what you think? Now if you want to take control of your retirement planning and get some decent advice then please click here to Schedule a Meeting by phone, face to face or via Skype. If you want to review your options we can guide you through the uncertainty. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

Leave a comment

by SMSF Coach - Liam Shorte on June 12, 2013 • Permalink

Posted in Financial Planning, Retirement Planning

Tagged Account Based Pension, Baulkham Hills, Castle Hill, Dural, Pension Kits, Pensions, Rule of Thumb, Self MAnaged Super, Self Managed Superannuation Fund, SMSF, Strategy, superannuation, Tax Planning, Transition to Retirement, Trustee, TTRAP, Windsor

Posted by SMSF Coach - Liam Shorte on June 12, 2013

https://smsfcoach.com.au/2013/06/12/how-much-super-is-enough-for-retirement-easy-to-follow-video/

How do I add more money to Pension Phase in my SMSF

This is a common question I get from people who have added more contributions to super and now want to move these to pension phase or are doing a re-contribution strategy to improve the tax-free percentage of your fund.

Option 1: Starting a new pension

The first option is to set up a new pension with those new or recycled funds. Yes, you can have as many pension accounts in the fund as you wish and as part of long-term strategies and estate planning we have had clients with 4-6 pension accounts prior to consolidation. We often set up new pensions when dealing with Non-Concessional contributions as they are 100% tax-free and we like to maintain that position and not taint it with a mixed taxable / tax-free balance.

Bear in mind that you can make a contribution in June of a financial year and start a pension immediately without having to take any minimum pension for that financial year. This can aid a trustee in ensuring the funds go in to the fund and immediately in to pension phase.

Option 2: Consolidating Pensions by resetting the current pension

(more…)

3 Comments

by SMSF Coach - Liam Shorte on May 22, 2013 • Permalink

Posted in Contribution Strategies, Pension Strategies, Retirement Planning, SMSF Management

Posted by SMSF Coach - Liam Shorte on May 22, 2013

https://smsfcoach.com.au/2013/05/22/how-do-i-add-more-money-to-pension-phase-in-my-smsf/

How do I start a Pension in a SMSF

Another of our background articles on the basics of implementing Self Managed Super Fund strategies in plain English.

There are a number of reasons why you may decide to establish a pension from your SMSF but we believe everyone over 55 should at least consider one and the majority of people over 60 would be hard pressed to give a decent reason why not to use one.

The usual reasons for members to move into pension phase (proper name is Account Based Pension) include:

Cutting back hours and using a Transition to Retirement Pension to make up for lost income (see our blog on Transition to Retirement pensions)
Pre-retirement tax minimisation strategies via a Transition to Retirement Pension;
Full Retirement;
Incapacity (Temporary or Total and Permanent) due to illness or injury; or
You need additional funds to meet your increased living and medical expenses as you age.

The main reason someone would not start a pension is that they are still 55-59 and already contributing up to their contribution limits and do not need the cash to meet their current living expenses. In this case they may incur tax on the pension that outweighs the benefits or may affect Centrelink benefits of an older spouse. Otherwise the main reason is someone who does not need the funds and is over 65 and would like to retain the full balance of the capital and earnings in superannuation environment and the 15% tax on earnings is not an obstacle (yes there are some for whom this is suitable).

So what is an Account Based Pension?

When you are contributing to super, you are in ‘Accumulation’ phase. Essentially all contributions and earnings in the fund are allocated to your member’s Accumulation account. This money then remains preserved until you satisfy a “condition of release” (Ok let’s explain this jargon).

“Condition of release”

A condition of release is a nominated event that the member must satisfy to be able to withdraw benefits from their superannuation fund such as:

Reaching preservation age (55 for people born before 01/071960 and rising incrementally to 60 for those before 30/06/1964 with 60 for all born after 01/07/1964)
Permanent retirement from the workforce on or after your preservation age
Termination of employment after turning age 60 (without necessarily retiring permanently)
Reaching age 65 (whether you are retired or not)
Permanent incapacity
Diagnosis of a terminal medical condition
Severe financial hardship
Eligibility for approval on compassionate grounds
Satisfying any other condition of release as specified in superannuation law.

Once you have satisfied a condition of release your benefits become reclassified to unrestricted non-preserved and the member has the option of starting an income stream via a pension with all or part of their account balance

If you decide to establish a pension with your account, the balance is now referred to as being in ‘pension phase’. This means that no further contributions can be made into this account. Don’t panic! SMSF members often have an accumulation account (to contribute to) and a pension account (to withdraw from) at the same time.

Benefits of setting up a pension

Account Balance moves to Tax free status (Everyone understands Tax Free!!!!!)

While you are in accumulation phase, the fund will pay 15% tax on all contributions and taxable income within the fund. The real benefit in my opinion for you moving into pension phase as early as possible is that the portion of the fund supporting the pension also moves into a tax-free environment. This means that there is no tax to pay on any income or capital gains from the assets supporting the pension. So if you and your younger spouse had 50/50 balances in the fund and you went in to pension phase then you could expect approximately 50% of the earnings to be tax-free.

Tax free pension income stream (like a tax haven but in Australia!)

For members receiving SMSF pension payments from the age of 60 onwards, there is no requirement to report the pension in your personal tax return. This means that all pension and indeed Lump Sum withdrawals from your self-managed super fund are tax-free! Yes, that often means that you will no longer need to do a tax return at all if your other earnings are low. For those 55-59 the pension can be very tax effective if combined with salary sacrifice a s you receive a 15% Pension Tax offset.

Refund of franking credits – the Sweetener!

Franking credits also known as imputation credits represent the local tax paid by Australian companies on their earnings (currently 30%) and are attached to franked dividends. These credits are fully refundable to superannuation funds in pension phase. Usually they are used to offset any tax liabilities the fund has, however for a fund fully in pension phase, the income is no longer taxable, so no tax liability and the franking credits will be refunded in cash to the fund. This can lead to an improvement in your returns by up to 30% on the earnings of blue chip shares in your fund. This is why the fully franked dividends of companies like Telstra, Westpac and Woolies have become known as the “Pensioners Friend”. See this article for a full explanation of The added value of franking credits in a SMSF Portfolio

Control of amounts and timing of payments

As long as the minimum payment requirements of the pension are met, the member can control how much pension they will withdraw as well as the timing of those payments. We often structure payments to match how the client received their pay while working, be it fortnightly, monthly or for some half-yearly or annually if they had other regular income to cover living expenses.

What is required to set up the Pension in a SMSF?

All you need to do is organise a Pension Kit with your advisor or administrator.

The Pension Kit document package for a SMSF Pension set up includes:

Application form – from fund member to fund trustee(s) requesting a pension and the details like the chosen start date and where to be paid and when;
Minutes of the fund trustee(s) agreeing to pay the pension, often agreeing to the pension from the request date but delaying the issue of the final documents until the annual financials have been prepared;
The Pension Payment Agreement containing the rules under which the pension will be paid;
A Product Disclosure Statement summarising the features of the Pension (rules and regulations basically);
A cover letter explaining what to do next as far as making the payments.

Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572

9 Comments

by SMSF Coach - Liam Shorte on April 26, 2013 • Permalink

Posted in Pension Strategies, Pensions, SMSF Management

Tagged Account Based Pension, Baulkham Hills, Castle Hill, Dural, Pension Kits, Pensions, Self MAnaged Super, Self Managed Superannuation Fund, SMSF, Strategy, superannuation, Tax Planning, Transition to Retirement, Trustee, TTRAP, Windsor

Posted by SMSF Coach - Liam Shorte on April 26, 2013

https://smsfcoach.com.au/2013/04/26/how-do-i-start-a-pension-in-a-smsf/

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Liam Shorte

IFA 2023 Excellence Awards – SMSF Advisor of the Year – Finalist

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All posts tagged Self Managed Superannuation Fund

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Superannuation proposals that have got the green light

Transfer of lost member accounts to the Australian Taxation Office (ATO)

Superannuation proposals that are getting the flick – red light

Tax on superannuation pensions

Establishment of a council of superannuation guardians

Superannuation proposals that are to be reviewed – Amber light

Clarifying the operation of certain superannuation trust deed clauses

Acquisition and disposal of certain assets between related parties of self-managed superannuation funds (SMSFs)

Encouraging the take-up of deferred lifetime annuities

Verification of SMSF members and bank accounts

Stronger Super measures

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Keep the folder updated

Keep a scanned copy

Get organised and don’t delay

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Question received:

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DON’T WASTE MONEY PAYING TAX WHEN YOU DON”T HAVE TO.

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Benefits of setting up a pension

What is required to set up the Pension in a SMSF?

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